Tuesday, 5 April 2011

The world now grows in Fosbury style

Compare the world economy with a high jump event in track and field athletics. The Straddle technique held the playing field for half a century before the Fosbury flop technique began to spread. With the Straddle technique, both the top and the centre of mass of jumpers’ bodies cleared the bar simultaneously, the feet dragging behind. Using the Fosbury flop, competitors bend their body in such a way that their top clears the bar with the centre of the mass and the feet behind.

Translate this event to the world economy: For the first time in history, we will find ourselves in a situation where the countries with the largest economic mass in the world are not also the richest in the world, or the most advanced technology leader. This complicated configuration corresponds to the Fosbury flop technique. Until now, we have been used to a world in which the most advanced countries were identical with the global center of gravity, akin to the Straddle technique. With the sustained growth of large emerging countries, the world economy has been moving from Straddle to Fosbury technique; the world may become more complicated, but it can jump higher – grow faster - than before.

Just consider what the switch toward Fosbury flop style did for high jump records.


What will be the consequences of the Fosbury world for low-income developing countries, the feet in the metaphor? Will they grow faster, lifted up by the weighty fast-growing emerging countries? A recent long-run development model (Chamon and Kremer, 2009), says yes: As emerging countries succeed in becoming advanced economies, their success will improve export opportunities for the remaining developing countries, which can lead to accelerating global growth. As countries get richer, they experience a demographic transition with a drop in fertility and young age dependence. If differentials of population growth are small between developing and advanced economies, economic development accelerates over time. Both migration and aid from rich to poor countries can support this process. Once China and India become rich and once their poor share the new wealth, over two billion more people will live in countries that import labour intensive goods and fewer in a countries that export them, opening up opportunities for other countries to fill this niche. Their initial opening may have hurt developing countries in the short term, but their sustained growth improves the long-term prospects of low-income developing countries. First empirical evidence (Garroway et al., 2010) does indeed suggest that poor countries, oil and non-oil, have been changing their growth locomotive during the 2000s, from the G7 countries to China.

Further reading:
Chamon, M., Kremer, M. (2009), Economic transformation, population growth and the long-run world income distribution, Journal of International Economics, http://econpapers.repec.org/article/eeeinecon/v_3a79_3ay_3a2009_3ai_3a1_3ap_3a20-30.htm
Garroway, C. et al (2010), The Renminbi and Poor-Country Growth, OECD Development Centre Working Paper No.292, http://ideas.repec.org/p/oec/devaaa/292-en.html

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